The dollar widens its gains after approving the new Tax plan
The Dollar extended gains in early Asian trade after closing higher as the US Senate approved a budget vehicle for tax cuts. The Euro dropped another 20 points after Catalonia rejected Spanish plans of direct rule. In Japan’s general election held yesterday, Prime Minister Shinto Abe led his ruling Coalition party to a resounding victory. The Dollar jumped a further 0.37% against the Yen earlier today.
Canadian September CPI missed expectations, up 0.2%against a forecast 0.3%.
Canadian September Core Retail Sales (excluding automobiles) slumped -0.7% against a forecast 0.3%.
US September Existing Home Sales rose 0.7% to total 5.37 million (against forecast 5.30 million). It was the first rise after three monthly falls.
Wall Street stocks rose following the tax news, with the Dow closing at another record high, up 0.7%. The S&P 500 gained 0.5% to 2,576 (2,560.5 Friday).
The yield on the US Ten year Treasury led global yields higher, closing up 6 basis points to 2.38%. Germany’s Ten Year Bund yield ended at 0.45%, up 5 basis points.
USD/DXY – closed up 0.53% in New York at 93.661 (93.105 Friday).
USD/JPY – jumps to 113.85 in early trade, following it’s New York close at 113.52 and 112.67 Friday.
EUR/USD – finished at 1.1780 in New York before dropping to 1.1763 in early Asia
GBP/USD – ends lower on broad-based US strength at 1.3085 from 1.3148 Friday.
AUD/USD – closed lower at 0.7815 (0.7864 Friday).
USD/SGD – rallied to finish at 1.3610 from 1.3585 Friday. The Dollar advanced against the Emerging Market currencies (USD/ZAR, USD/CNH, USD/MXN)
Outlook: The Dollar’s recovery is intact and is poised for further gains. The Dollar gained the most in a day on Friday as progress on US tax reforms raised prospects of fiscal impact on the economy. In Europe, further unrest in Spain will undermine the Euro, which is topping out. The rise in US yields has been outpacing the rise in global interest rates. In the Ten Year yields, interest rate differentials are widening in favor of the US. Sterling was the only major currency to rally against the US Dollar on news that an agreement to move Brexit talks to the second stage was likely in December.
Events and Economic Data due today are light:
Canadian September Wholesale Sales: (GMT 12.30 pm, Oct 23/Local Time 11.30 pm, Oct 23) forecast: 1.1% from 1.5%
US Chicago Fed National Activity Index: (GMT 12.30 pm, Oct 23/Local Time11.30 pm, Oct 23) forecast: previous reading was -0.31.
Trading View: The light calendar of events and economic data today will change this week. Tomorrow(Tuesday, Oct 24) French, German and Euro Zone PMI data are due for release. On Wednesday (Oct 25), Australia releases CPI data, UK Preliminary GDP is due out as well as US Headline and Core Durable Goods data. Thursday (Oct 26) sees the Bank of Canada and European Central Bank Interest Rate and Policy meetings. US Advance GDP data on Friday (Oct 27) finishes the week. The Dollar should consolidate it's gaining today. The Dollar Index (USD/DXY) closed at 93.661 after trading to an overnight high of 93.783. This morning USD/DXY rose to 93.79. The resistance at 94.00/94.20 is within reach once more. A break of 94.25 is needed to see the Index higher, potentially to 96.50-97.00
EUR/USD – slipped to a low of 1.17619 after closing at 1.1782 on Friday in New York. Immediate support for the Euro lies at 1.1750 and then at 1.1730. Immediate resistance lies at 1.1790 and at 1.1820. Catalan President Puigdemont said late Saturday via Reuters that Catalan cannot accept measures decided by the Spanish government headed by President Mariano Rajoy. The political uncertainty as a result of Catalonia’s push for independence will weigh on the Euro. The ECB policy and interest rate meeting this Thursday will be huge. A break of 1.1750 will see the 1.1660/70 level, the lows in late July and early August. Likely range today 1.1750-1.1800. Look to sell rallies.
USD/JPY – The impressive Abe win in the Japanese elections saw the Dollar jump to 113.85 from Friday’s New York close of 113.50. USD/JPY was at 112.67 on Friday morning. This will make Shinto Abe the longest serving political leader in Japan. Abe is expected to reappoint all Cabinet members. Current BOJ Governor Haruhiko Kuroda’s term ends in 2018 and it is a close call as to whether he will remain for a second term. In any case, his successor will likely maintain the Bank of Japan’s dovish stance toward inflation. There is short term support at 113.50 (Friday’s NY close). Likely range 113.50-114.00.
GBP/USD – Sterling bounced on the news that British Prime Minister Theresa May won a reprieve from EU leaders to move to the second phase of Brexit negotiations in December. May told the EU leaders at a conference in Brussels that the UK would honor its financial commitments it had made as a member of the bloc. GBP/USD closed at 1.3190 from 1.3148 Friday. UK GDP numbers are due on Wednesday. The BOE’s next policy meeting is on November 2. GBP/USD has immediate resistance at 1.3200 (overnight high) and 1.3230. Immediate support lies at 1.3150. Likely range 1.3140-1.3200.
AUD/USD – broader US Dollar strength pushed the Aussie lower to 0.7815 from 0.7865 Friday. Australian CPI data are due this Wednesday. AUD/USD has immediate resistance at 0.7800 and 0.7780. Immediate resistance lies at 0.7845and then at 0.7880. Ten year yield differentials between US and Australian are narrowing. On Friday US Ten year yields were at 2.38% while it’s Australian counterpart was at 2.78%. A month ago, the yield on the US Ten year was at 2.22% while the Australian Ten year yield was at 2.80%. The differential has narrowed to 0.4 from 0.58. Likely range today 0.7780-0.7830. The Aussie looks like it’s heading toward 0.75 cents, look to sell rallies.
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